For Liberums health analyst Graham Doyle, we must not dither: the big pharmaceutical companies have every interest in not putting all their eggs in the same basket and in putting the soft pedal on specialty medicine. Companies in the sector should diversify their R&D to include more treatments for chronic diseases, basic and affordable care, "essentially because we think specialty drug price pressure in the US will grow as payers vertically integrate and focus on 'bang for buck, he said.
Doyle cites a recent study by Nature Reviews Drug Discovery estimating that 40% of the 3,558 unique molecules currently being tested in clinical trials in the pharmaceutical industry are related to oncology. Applying the historical median success rate, this means that approximately 153 cancer treatments could reach the market in the coming years. The first concern is the annual volume. This would correspond to about 30 treatments approved each year for oncology alone, where the U.S. Drug Agency authorizes an average of about 45 treatments per year for all indications combined. On the other hand, this profusion advances science and the treatment of patients. But it raises certain questions for the structural and financial balance of the sector.
Probably too many
But that's not all. The Liberum analyst dives down to the lower level to find that 11 of the 15 indications in which the most treatments are tested are related to cancer (including 9 of the top 10), as shown in the graph below. Of the 11 oncology indications concerned, there are on average 18 ongoing programs for each of them. Thus, 30 candidates are clinically active in non-Hodgkin's lymphoma (NHL) and 26 in non-small cell lung cancer (NSCLC). For the five most studied indications (NHL, NSCLC, Breast Cancer, Acute Myeloblastic Leukaemia, Solid Tumours), 24 molecules are on average competing in each indication. For Doyle, this situation could lead to paradoxes: treatments that have overcome the technical pitfalls until they are placed on the market could fail commercially. This adds a level of complexity to developments and strategies.
Top 15 indications by number of projected launches, oncology in dark green (Source Liberum with NRDD - Click to enlarge)
Liberum's health specialist also produces another graph from the study "Nature Reviews Drug Discovery", reproduced below, showing the projected share of molecules entering the market by type of therapeutic zone based on the current laboratory pipeline. The domination of oncology is confirmed with a 27% share, ahead of infectious diseases (13.6%) and neurology (7.6%). Doyle points out the very low proportion of treatments for chronic diseases such as diabetes, respiratory or cardiovascular diseases (8.4% overall).
Share of molecules that should reach the market by specialties (Source Liberum with NRDD - Click to enlarge)
"There is no doubt that the major reason for the industry's heavy focus on oncology is that this is where the greatest innovation is," says Liberum, but it is not the only one. The sector is pushing oncology much further into the clinic. The analyst believes that it is the structure of sectoral incentives that distorts the system, by offering excessively high prices for specialty medicine, which pushes laboratories to favor the clinical advancement of these assets over others. But the ongoing consolidation in the United States (CVS / Aetna; Cigna / Express Scripts) should change the situation by forcing new players to adopt a more rational approach to pricing in relation to medical efficiency.
What can we conclude from this? Graham Doyle believes that the current oncology pipeline is not commercially sustainable and could help accelerate the ongoing process of price declines in specialty medicine in the United States. He recommends that long-term investors integrate this dimension when they rely on players in the sector, and illustrates its purpose and conclusion with the Roche
case. " We often hear Roche bears argue that Roche is not what it was in oncology having been seemingly bested by Merck
in I-O (
) We think a lesser dependence on oncology is in fact the right strategy and point to the following of clear evidence of Roche's increasingly successful, and deliberate, efforts to broaden the company's earnings and R&D base.